Gaming Industry Struggles to Stay Afloat Amidst Growing Uncertainty Regarding GST
6th August 2022, India: Following the developments of the 47th GST Council meeting that happened over 28-29th June, recommendations had been made to raise the taxation rate for the online gaming industry to 28% from the current 18% rate. In a successive meeting in July, it was decided that the GoM will submit a report to the GST council, following which a final decision will be made in August. The decision–whether acceptance or otherwise, of the aforementioned proposal will impact the business viability of the online skill gaming industry, highlighting the importance of giving the sunrise sector a progressive tax regime in order to help it thrive,
The Central government has introduced several positive measures like forming an AVGC taskforce, the Inter-Ministerial Task Force to come up with a regulatory policy, holding meetings with key online skill gaming industry players to understand the sector’s growth potential and concerns and more.
However, according to industry experts, the recent recommendation from the GoM for taxation, had the potential to render the industry unviable. Speaking on the same, the Vice President of Solutions at Concentrix–Kamalendu Bali, stated, “Associating the genre of online gaming with gambling, betting, casino and lottery, etc signals nothing but doom for the potential of this industry. The speculation to increase the tax rate is another nail in the coffin. The sector is perplexed at the lack of clarity for this sector, and their overstayed welcome in a grey area.”
The negative scrutiny that the online gaming sector has continually remained under is another source of concern for the industry stakeholders. The legitimacy of skill based online games has been acknowledged by several High Courts and the Supreme Court. Article 19(1)(g) of the Constitution of India provides legal recognition to online games of skill as legitimate business activities. Games of chance including lottery, gambling, betting or wagering, do not avail this protection and are considered res extra commercium. Article 14 of the Constitution also dictates that unequals shall not be treated equally.
Industry experts have also pointed out how the industry could collapse with a valuation metric change. According to their concerns, applying tax on the entire value of consideration would significantly reduce the amount of player winnings and repel player interest on legal platforms. This would in turn, promote offshore and illegal platforms that do not contribute to the exchequer.
The online gaming industry is slated to touch $5 billion dollars in the next 3 years and is considered a beacon for Investments. The sunrise sector has played a key role in helping national growth and driving revenue for the government. The government has previously acknowledged this growth, and given support to the industry, which has made stakeholders hopeful for a favourable taxation regime.
Industry experts also believe that India could learn from the global precedents of US and UK to understand what worked best for the respective countries, rather than potentially crippling the online gaming industry by levying GST on the entire consideration value.